ECON5370- Exam2

US and Canada can both grow wheat and can do mining. Use the following table to look for which country has a comparative advantage in mining. (HINT: Find the cost of mining in terms of wheat in each country.) Absolute Cost in US Absolute Cost in Canada Wheat $5 C$8 Mining $10 C$12 a. Canada has a comparative advantage in mining. b. The US has a comparative advantage in mining. c. No comparative advantage in mining exists for either nation. d. We must first know the exchange rate to be able to answer this question. e. Both a and b.

a. Canada has a comparative advantage in mining.

Using demand and supply curves for the Japanese yen based on the $/¥ price for yen, an increase in US INFLATION RATES would a. Decrease the demand for yen and decrease the supply of the yen. b. Decrease both the supply and the demand of yen. c. Increase the demand for yen and decrease the supply of the yen. d. Increase the demand and increase the supply of yen. e. Have no impact on the demand or supply of the yen.

a. Decrease the demand for yen and decrease the supply of the yen.

The optimal currency area involves a trade-off of reducing transaction costs but the inability to use changes in exchange rates to help ailing regions. If the US, Canada, and Mexico had one single currency (the Peso-Dollar) we would tend to see all of the following EXCEPT: a. Less migration of workers across the three countries. b. An elimination of correlated macroeconomic shocks across the countries. c. Lower transaction costs of trading within North America. d. Even more intraregional trade of goods across the three countries. e. A greater difficulty in helping Mexico as you can no longer deflate the Mexican peso.

a. Less migration of workers across the three countries.

In Chinese coastal provinces, brick housing for a fast expanding middle class is very comparable in size to housing in the U.S. for a family with median income of $51,000 because a. bricks, trade skill workers and construction labor are very cheap in China b. housing is an income inferior good c. the Chinese government builds much of the housing in China d. median income per capita has risen in China to nearly equal median income in the U.S. e. construction companies have begun to migrate to the coastal provinces of China

a. bricks, trade skill workers and construction labor are very cheap in China

Simplified trend models are generally appropriate for predicting the turning points in an economic time series. a. false b. true

a. false

Consider the following multiplicative demand function where Q D = quantity demanded, P = selling price, and Y = disposable income: Q D= 1.6 P^-1.5 Y^0.2 The coefficient of Y ( i.e., .2) indicates that (all other things being held constant): a. for a one percent increase in disposable income, quantity demanded would increase by .2 percent b. for a one unit increase in disposable income, quantity demanded would increase by .2 units c. for a one percent increase in disposable income quantity demanded would increase by .2 units d. for a one unit increase in disposable income, quantity demanded would increase by .2 percent e. none of the above

a. for a one percent increase in disposable income, quantity demanded would increase by .2 percent

Purchasing power parity or PPP says the ratios composed of: a. inflation rates explain the direction of exchange rates. b. interest rates explain the direction of exchange rates. c. public opinion polls explain the direction of exchange rates. d. growth rates explain the direction of exchange rates. e. services explain the direction exchange rates.

a. inflation rates explain the direction of exchange rates.

The type of economic indicator that can best be used for business forecasting is the: a. leading indicator b. optimism/pessimism indicator c. coincident indicator d. current business inventory indicator e. lagging indicator

a. leading indicator

Regarding short-range exchange rate movements, which of the following statements is NOT true? a. ​are similar to those of the transaction demand determinants of long-term trends in exchange rates b. ​both a and b are false c. ​they may vary from hour to hour d. determined by arbitrage activity e. they ​may vary from week to week

a. ​are similar to those of the transaction demand determinants of long-term trends in exchange rates

Mr. Geppetto uses exponential smoothing to predict revenue in his wood carving business. He uses a weight of ω = .4 for the naïve forecast and (1- ω) = .6 for the past forecast. What revenue did he predict for March using the data below? Select closet answer. MONTH REVENUE FORECAST Nov 100 100 Dec 90 100 Jan 115 ---- Feb 110 ---- MARCH ? ? a. 102.1 b. 106.2 c. 103.2 d. 101.7 e. 104.7

b. 106.2

One commonly used test in checking for the presence of autocorrelation when working with time series data is the ____. a. F-test b. Durbin-Watson test c. t-test d. z-test e. none of the above

b. Durbin-Watson test

The assumptions underlying the simple linear regression model are: a. a theoretical straight-line relationship exists between X and the expected value of Y b. a through c c. the value of the dependent variable Y is postulated to be a random variable d. the disturbance term is assumed to be an independent random variable e. associated with each value of X is a probability distribution f. ​b through d

b. a through c

In regression analysis, the existence of a significant pattern in successive values of the error term constitutes: a. nonlinearities b. autocorrelation c. multicollinearity d. a simultaneous equation relationship e. heteroscedasticity

b. autocorrelation

The variation in an economic time-series which is caused by major expansions or contractions usually of greater than a year in duration is known as: a. secular trend b. cyclical variation c. seasonal effect d. unpredictable random factor e. none of the above

b. cyclical variation

An example of a time series data set is one for which the: a. use of regression analysis would impossible in time series. b. data would be collected for a given firm for several consecutive periods (e.g., months). c. regression analysis comes from data randomly taken from different points in time. d. data is created from a random number generation program. d. data would be collected for several different firms at a single point in time.

b. data would be collected for a given firm for several consecutive periods (e.g., months).

The coefficient of determination measures the proportion of the variation in the independent variable that is "explained" by the regression line. a. true b. false

b. false

Consider the following linear demand function where Q D = quantity demanded, P = selling price, and Y = disposable income: Q D = −36 −2.1P + .24Y The coefficient of P ( i.e., −2.1) indicates that (all other things being held constant): a. for a one percent increase in price, quantity demanded would decline by 2.1 percent b. for a one unit increase in price, quantity demanded would decline by 2.1 units c. for a one percent increase in price, quantity demanded would decline by 2.1 units d. for a one unit increase in price, quantity demanded would decline by 2.1 percent e. none of the above

b. for a one unit increase in price, quantity demanded would decline by 2.1 units

An increase in the exchange rate of the U.S. dollar relative to a trading partner can result from a. lower export industry productivity b. higher growth rates in the trading partner's economy c. higher anticipated costs of production in the U.S. d. a change in the terms of trade e. higher interest rates and higher inflation in the U.S.

b. higher growth rates in the trading partner's economy

Companies that reduce their margins on export products in the face of appreciation of their home currency may be motivated by a desire to a. sacrifice market share abroad but build market share at home b. increase production volume to realize learning curve advantages c. sell foreign plants and equipment to lower their debt d. reduce the costs of transportation e. all of the above

b. increase production volume to realize learning curve advantages

Which of the following barometric indicators would be the most helpful for forecasting future sales for an industry? a. lagging economic indicators. b. leading economic indicators. c. coincident economic indicators. d. wishful thinking e. none of the above

b. leading economic indicators.

In regression analysis, the existence of a high degree of intercorrelation among some or all of the explanatory variables in the regression equation constitutes: a. a simultaneous equation relationship b. multicollinearity c. nonlinearities d. heteroscedasticity e. autocorrelation

b. multicollinearity

A study of expenditures on food in cities resulting in the following equation: Log E = 0.693 Log Y + 0.224 Log N where E is Food Expenditures; Y is total expenditures on goods and services; and N is the size of the family. This evidence implies: a. that a one-percent increase in total expenditures increases food expenditures 1%. b. that a one-percent increase in family size increases food expenditures .224%. c. that a one-percent increase in family size increases food expenditures .693%. d. that as total expenditures on goods and services rises, food expenditures falls. e. that as family size increases, food expenditures go down.

b. that a one-percent increase in family size increases food expenditures .224%.

Caution must be exercised in using regression models for prediction when: a. the value of the independent variable lies inside the range of observations from which the model was estimated b. the value of the independent variable lies outside the range of observations from which the model was estimated c. diminishing returns are present d. the existence of saturation levels are present e. none of the above

b. the value of the independent variable lies outside the range of observations from which the model was estimated

In the first-order exponential smoothing model, the new forecast is equal to a weighted average of the old forecast and the actual value in the most recent period. a. false b. true

b. true

The coefficient of determination ranges in value between 0.0 and 1.0. a. false b. true

b. true

All of the following are criteria used to select a forecasting technique EXCEPT: a. ​the complexity of the relationships being forecast b. ​the time required to complete the model c. ​all of these are criteria used to select a forecasting technique d. ​the accuracy required of the forecasting model e. ​the cost associated with developing the forecasting model

b. ​the time required to complete the model

Regarding operating risk exposure, which of the following statements is NOT true? a. ​they are more difficult to hedge than transaction risk exposures b. ​they are easier to forecast than translation risk exposures c. ​they necessitate more managerial attention and extensive analysis d. ​only a and b e. ​all of the above are true

b. ​they are easier to forecast than translation risk exposures

In addition to prediction, one purpose of regression analysis is: a. to measure the overall "fit" of the model to the sample observations b. ​to test whether the slope parameter β is equal to some particular value c. ​to test whether the slope parameter β is equal to zero d. ​b and c e. ​none of the above

b. ​to test whether the slope parameter β is equal to some particular value

Emma uses a linear model to forecast quarterly same-store sales at the local Garden Center. The results of her multiple regression is: Sales = 2,800 + 200•T - 350•D where T goes from 1 to 16 for each quarter of the year from the first quarter of 2006 ('06I) through the fourth quarter of 2009 ('09 IV). D is a dummy variable which is 1 if sales are in the cold and dreary first quarter, and zero otherwise, because the months of January, February, and March generate few sales at the Garden Center. Use this model to estimate sales in a store for the first quarter of 2010 in the 17th month; that is: {2010 I}. Emma's forecast should be: a. 5,950 b. 6,350 c. 5,850 d. 6,000 e. 6,200

c. 5,850

Suppose a plot of sales data over time appears to follow an S-shape as illustrated below. Sales ♦ ♦ ♦ ♦ ♦ ♦ Time Which of the following is likely that the best forecasting functional form to use for sales data above? a. A quadratic shape in T and T-squared as variables, Sales = a + b T + cT2 b. A linear trend, Sales = a + b T c. A cubic shape in T, using T-squared and T-cubed as variables, Sales = a + b T + cT2 + d T3. d. A quadratic shape in T, using T-squared as another variable, Sales = a + b T + cT2. e. A semi-log form as sales appear to be growing at a constant percentage rate, Ln Sales = a + bT

c. A cubic shape in T, using T-squared and T-cubed as variables, Sales = a + b T + cT2 + d T3.

In a regression equation, one may measure the accuracy of the estimation by: a. estimating the standard deviation of the errors of prediction b. ​calculating the standard error of the estimate c. a and b only d. all of the above e. calculating the standard deviation of the errors of prediction

c. a and b only

Time-series forecasting models: a. are useful whenever changes occur rapidly and wildly b. are more effective in making long-run forecasts than short-run forecasts c. are based solely on historical observations of the values of the variable being forecasted d. attempt to explain the underlying causal relationships which produce the observed outcome e. none of the above

c. are based solely on historical observations of the values of the variable being forecasted

The forecasting technique which attempts to forecast short-run changes and makes use of economic indicators known as leading, coincident or lagging indicators is known as: a. econometric technique b. time-series forecasting c. barometric technique d. opinion polling e. judgment forecasting

c. barometric technique

For studying demand relationships for a proposed new product that no one has ever used before, what would be the best method to use? a. ordinary least squares regression on historical data b. market experiments, where the price is set differently in two markets c. consumer surveys, where potential customers hear about the product and are asked their opinions d. double log functional form regression model e. all of the above are equally useful in this case

c. consumer surveys, where potential customers hear about the product and are asked their opinions

In a recession, the trade balance often improves because a. service exports exceed manufactured good exports b. banks sell depressed assets c. fewer households can afford luxury imports d. the capital account exceeds the current account e. direct investment abroad declines

c. fewer households can afford luxury imports

Trading partners should specialize in producing goods in accordance with comparative advantage, then trade and diversify in consumption because a. out-of-pocket costs of production decline b. economies of scale are present c. more goods are available for consumption d. free trade areas protect infant industries e. manufacturers face diminishing returns

c. more goods are available for consumption

In an open economy with few capital restrictions and substantial import-export trade, a rise in interest rates and a decline in the producer price index of inflation will a. increase the volume of trading in the foreign exchange market b. lower the nominal interest rate c. raise the value of the currency d. lower the trade-weighted exchange rate e. increase consumer inflation.

c. raise the value of the currency

Consumer expenditure plans is an example of a forecasting method. Which of the general categories best described this example? a. time-series forecasting techniques b. input-output analysis c. survey techniques and opinion polling d. econometric techniques e. barometric techniques

c. survey techniques and opinion polling

In testing whether each individual independent variables (Xs) in a multiple regression equation is statistically significant in explaining the dependent variable (Y), one uses the: a. F-test b. Durbin-Watson test c. t-test d. z-test e. none of the above

c. t-test

If the British pound (£) appreciates by 10% against the dollar: a. both the US importers from Britain and US exporters to Britain will be helped by the appreciating pound. b. the US exporters will find it harder to sell to foreign customers in Britain. c. the US importer of British goods will tend to find that their cost of goods rises, hurting its bottom line. d. both US importers of British goods and exporters to Britain will be unaffected by changes in foreign exchange rates. e. all of the above.

c. the US importer of British goods will tend to find that their cost of goods rises, hurting its bottom line.

European Union labor costs exceed U.S. and British labor costs primarily because a. layoffs and plant closings are more restrictive in the U.S. and Britain b. labor-management relations are better in the EU c. the amount of paid time off is higher in the EU d. worker productivity is lower in the EU e. union wages are higher in the EU

c. the amount of paid time off is higher in the EU

The constant or intercept term in a statistical demand study represents the quantity demanded when all independent variables are equal to: a. 1.0 b. their minimum values c. their average values d. 0.0 e. none of the above

d. 0.0

If the value of the U.S. dollar rises from €1.0 per dollar to €1.3 per dollar, a. sales by American manufacturers for the export markets will increase. b. American inflation will increase c. German exports of all traded goods will decline d. American exports to Germany will decrease e. imports of automobiles from Germany will decline

d. American exports to Germany will decrease

If Janet Yellen, Chair of the Federal Reserve Board, begins to tighten monetary policy by raising US interest rates next year, what is the likely impact on the value of the dollar? a. The Federal Reserve has no impact at all on interest rates. b. The value of the dollar falls when US interest rates rise. c. This is known as Purchasing Power Parity or PPP. d. The value of the dollar rises when US interest rates rise. e. The value of the dollar is not related to US interest rates.

d. The value of the dollar rises when US interest rates rise.

Examine the plot of data. Sales ♥ ♥ ♥ ♥ ♥ ♥ ♥ ♥ ♥ ♥ Time It is likely that the best forecasting method for this plot would be: a. a secular trend upward b. a semi-log regression model c. a two-period moving average d. a seasonal pattern that can be modeled using dummy variables or seasonal adjustments e. a cubic functional form

d. a seasonal pattern that can be modeled using dummy variables or seasonal adjustments

In the last twenty-five years, the Yen and German mark and now the Euro have a. fluctuated widely against the dollar b. appreciated against the dollar and then depreciated against the dollar c. exchanged without restrictions d. all of the above e. none of the above

d. all of the above

The purchasing power parity hypothesis implies that an increase in inflation in one country relative to another will over a long period of time a. increase exports b. increase foreign aid c. increase the speculative demand for the currency d. lower the value of the currency in the country with the higher inflation rate e. reduce the competitive pressure on prices

d. lower the value of the currency in the country with the higher inflation rate

When two or more "independent" variables are highly correlated, then we have: a. autocorrelation b. heteroscedasticity c. complementary products d. multicollinearity e. the identification problem

d. multicollinearity

If two alternative economic models are offered, other things equal, we would a. tend to pick the one with the lowest R2. b. select the model that is the most expensive to estimate. c. pick the model that was the most complex. d. select the model that gave the most accurate forecasts e. all of the above

d. select the model that gave the most accurate forecasts

Even though insignificant explanatory variables can raise the adjusted R^2 of a demand function, one should not interpret their effects on the regression when a. analyzing inventory relative to capacity requirements b. sales revenue reaches its peak c. forecasting unit sales for operations planning d. testing marketing hypotheses about the determinants of demand e. planning for capital budgets

d. testing marketing hypotheses about the determinants of demand

The Identification Problem in the development of a demand function is a result of: a. the variance of the demand elasticity b. the consistency of quantity demanded at any given point c. the negative slope of the demand function d. the simultaneous relationship between the demand and supply functions e. none of the above

d. the simultaneous relationship between the demand and supply functions

Smoothing techniques are a form of ____ techniques which assume that there is an underlying pattern to be found in the historical values of a variable that is being forecast. a. opinion polling b. barometric forecasting c. econometric forecasting d. time-series forecasting e. none of the above

d. time-series forecasting

Regarding forecasting, which of the following statements is NOT true? a. ​Operations managers need sales forecasts to plan future production. b. ​Financial managers need estimates of future sales revenues, disbursements & capital expenditures in order to plan effectively. c. ​Forecasts of credit conditions are needed to plan the cash needs of the firm. d. ​Public administrators and managers of NFP corporations need not forecast, since they need not make a profit. e. ​Both c and d are false.

d. ​Public administrators and managers of NFP corporations need not forecast, since they need not make a profit.

In a cross section regression of 48 states, the following linear demand for per-capita cans of soda was found: Cans = 159.17 - 102.56 Price + 1.00 Income + 3.94Temp Coefficients Standard Error t Stat Intercept 159.17 94.16 1.69 Price -102.56 33.25 -3.08 Income 1.00 1.77 0.57 Temperature 3.94 0.82 4.83 R-Sq = 54.1% R-Sq(adj) = 51.0% From the linear regression results in the cans case above, we know that: a. Price is insignificant b. Income is significant c. Temp is significant d. All of the coefficients are significant e. As price rises for soda, people tend to drink less of it

e. As price rises for soda, people tend to drink less of it

Novo Nordisk A/S, a Danish firm, sells insulin and other drugs worldwide. Activella, an estrogen and progestin hormone replacement therapy sold by Novo-Nordisk, is examined using 33 quarters of data Y = -204 + . 34X1 - .17X2 (17.0) (-1.71) Where Y is quarterly sales of Activella, X1 is the Novo's advertising of the hormone therapy, and X2 is advertising of a similar product by Eli Lilly and Company, Novo-Nordisk's chief competitor. The parentheses contain t-values. Addition information is: Durbin-Watson = 1.9 and R2 = .89.Using the data for Novo-Nordisk, which is correct? a. X1 is not statistically significant but X2 is statistically significant. b. Neither X1 nor X2 are statistically significant. c. The Durbin-Watson statistic shows significant problems with autocorrelation d. X1 is statistically significant but X2 is not statistically significant. e. Both X1 and X2 are statistically significant.

e. Both X1 and X2 are statistically significant.

If the domestic prices for traded goods rises 5% in Japan and rises 7% the US over the same period, what would happened to the Yen/US dollar exchange rate? HINT: S 1/S 0 = (1+ π h) / (1+ π f) where S 0 is the direct quote of the yen at time 0, the current period. a. Both a and d. b. The direct quote of the yen would remain the same. c. Purchasing power parity does not apply to inflation rates. d. The direct quote of the yen ($/¥) rises, and the value of the dollar falls. e. The direct quote of the yen ($/¥) falls, and the value of the dollar rises.

e. The direct quote of the yen ($/¥) falls, and the value of the dollar rises.

The use of quarterly data to develop the forecasting model Y t = a +bY t−1 is an example of which forecasting technique? a. Input-output analysis b. Econometric methods based on an understanding of the underlying economic variables involved c. Survey and opinion d. Barometric forecasting e. Time-series forecasting

e. Time-series forecasting

When a manufacturer's home currency appreciates substantially, a. domestic sales decline b. foreign sales decline c. company-owned foreign plant and equipment will increase d. margins often decline e. all of the above

e. all of the above

Select the correct statement. a. Qualitative forecasts give the direction of change. b. Quantitative forecasts give the exact amount or exact percentage change. c. Diffusion forecasts use the proportion of the forecasts that are positive to forecast up or down. d. Surveys are a form of qualitative forecasting. e. all of the above are correct.

e. all of the above are correct.

The import of Apple iPads assembled in Shanghai at a $295 wholesale price ($213 cost and $82 profit margin) adds more than it should to the U.S. trade deficit with China because a. the iPad's popularity has triggered an enormous number of unit sales b. wholesale prices only count in the trade statistics if final product prices are higher c. Chinese assembly labor represents only 47 % of the wholesale cost d. the Chinese yuan is a managed currency e. as with foreign-assembled minivans, most of the subassembly components come from the U.S.

e. as with foreign-assembled minivans, most of the subassembly components come from the U.S.

In which of the following econometric problems do we find Durbin-Watson statistic being far away from 2.0? a. multicollinearity b. the identification problem c. agency problems d. heteroscedasticity e. autocorrelation

e. autocorrelation

An appreciation of the U.S. dollar has what impact on Harley-Davidson (HD), a U.S. manufacturer of motorcycles? a. domestic sales of HD motorcycles decrease and foreign sales of HD motorcycles increase b. domestic sales of HD motorcycles increase and foreign sales of HD motorcycles decrease c. domestic sales of HD motorcycles increase and foreign sales of HD motorcycles increase d. only manufacturers who produce traded goods are affected e. domestic sales of HD motorcycles decrease and foreign sales of HD motorcycles decrease

e. domestic sales of HD motorcycles decrease and foreign sales of HD motorcycles decrease

When using a multiplicative power function (Y = a X1^b1 X2^b2 X3^b3) to represent an economic relationship, estimates of the parameters (a, and the b's) using linear regression analysis can be obtained by first applying a ____ transformation to convert the function to a linear relationship. a. polynomial b. semilogarithmic c. reciprocal d. cubic e. double-logarithmic

e. double-logarithmic

Demand functions in the multiplicative form are most common for all of the following reasons except: a. elasticities are constant over a range of data b. ease of estimation of elasticities c. c and d d. exponents of parameters are the elasticities of those variables e. marginal impact of a unit change in an individual variable is constant

e. marginal impact of a unit change in an individual variable is constant

Variations in a time-series forecast can be caused by: a. a, b, and c b. seasonal effects c. a and b only d. cyclical variations e. secular trends

on test: a. a, b, and c *** actually my B,D,E... all of the above***

Seasonal variations can be incorporated into a time-series model in a number of different ways, including: a. root mean squared error method b. a, b, and c c. ratio-to-trend method d. use of dummy variables e. a and b only

on test: e. a and b only **actually C and D**